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According to IMF's Gita Gopinath, the global economy has a 'buffer' against recession

by Shailee Mishra

Date & Time: May 25, 2022 10:00 AM

Read Time: 2 minute

While the global economy is facing challenges, current growth forecasts provide a cushion against a global recession, according to the IMF's No. 2 official.

IMF First Deputy Managing Director Gita Gopinath listed the conflict in Ukraine as one of the major threats to economic growth, adding, "You could have sanctions and counter sanctions."

Other challenges, Gopinath said in an interview on the sidelines of the World Economic Forum in Davos, Switzerland, include inflation, central bank interest rate tightening, and a slowdown in Chinese growth.
"So all of these provide downside risks to our forecast," Gopinath said, referring to the IMF's 3.6 percent growth forecast for 2022, which was downgraded from 4.4 percent in January.

Buffer at 3.6 percent

"I would say there is a buffer at 3.6 percent," she said, acknowledging that risks vary widely around the world."There are countries in Europe that are being hard hit by the war, and we could see technical recessions," Gopinath added.

"It is very important for central bankers around the world to deal with inflation as a clear and present danger, that is something they need to deal with in a very forceful manner," Gopinath said, adding that inflation "will remain significantly above central bank targets for a while."

China's growth is also slowing

"Financial conditions could tighten even faster than they have been. China's growth is also slowing "she continued.With two rate hikes so far this year, the Federal Reserve of the United States is leading the charge among the world's largest central banks.

Its second was the largest in 22 years, at half a percentage point. At least two more meetings of that size are expected in the near future.

"What's critical is for the Fed to keep a close eye on the data and respond at the scale required to deal with the incoming data," Gopinath said."If it turns out that inflation is particularly broad... and is rising even faster, they may need to react more forcefully."

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